Sprott is a Toronto-headquartered asset manager specializing in precious metals and critical materials (NYSE/TSX: SII), tracing its roots to Sprott Securities founded by Eric Sprott in 1981 and now led by CEO Whitney George. It runs physical gold, silver and uranium trusts, ETFs, active strategies and resource lending, with about $65bn in AUM. The Insights column carries monthly commentaries and white papers on uranium, gold, silver, copper and critical materials by Paul Wong, Jacob White and John Hathaway (ex-Tocqueville gold manager) — note the house's structurally bullish commodity stance, as it sells the corresponding trusts and ETFs.
Gold just broke through $2,500, and the move can't be explained by usual factors like interest rates or ETF flows. It's likely central banks (though not China) buying quietly. More importantly, free-floating gold inventory is drying up, and big sellers have almost disappeared. The chart shows a 30-year cup-and-handle pattern, targeting $2,600 first, then possibly $3,000-$3,300. Options activity has also surged, with bullish bets doubling. For regular investors, this suggests gold could keep rising, but expect more volatility since positions aren't extreme yet. A solid break above $2,600 would confirm the next leg up.
Sprott research report points out that since last Friday, gold has broken through the technical/psychological threshold of $2,500, entering a new buying phase that cannot be explained by traditional market variables (such as currencies, yields, curves, CFTC, and ETFs). The report speculates that the
This chapter focuses on the new upward drivers for gold after it broke through the $2,500 technical/psychological threshold. The report argues that this rally cannot be explained by traditional market variables (currency, yields, yield curve, CFTC, and ETFs), and speculates that the primary cause is purchases by central banks or sovereign institutions, while explicitly ruling out China. As of August 20, 2024, gold is up 21.86% year-to-date.
The author's core investment thesis is: Gold is likely to rise further, as the supply of "free-float available inventory" is rapidly drying up and major sellers have nearly disappeared. Counterintuitive judgments include: 1) This rally is not driven by China (Shanghai gold futures net long positions and premiums are negative); 2) CFTC deleveraging has reversed to accumulation, but positions remain far from historical highs; 3) Options market activity has become a price driver, rather than traditional ETF inflows.
1. Technical Pattern (Cup and Handle):
2. Surge in Options Market:
3. Exclusion of the China Factor:
4. CFTC and ETF Data:
| Indicator | Data | Implication |
|---|---|---|
| Gold year-to-date gain | 21.86% (as of 8/20) | Strong performance |
| Cup-and-handle target | $2,600 | Short-term technical target |
| Fibonacci projection range | $3,000–$3,300 | Medium-term potential target |
| Notional ounces of call options (strike +$2,490) | From 4.8M to 10M ounces | Options market bullish bets doubled |
| China's central bank purchase share | Approximately 25% | Not the sole buyer; multiple central banks involved |